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W51 Stephenson Limited produces a variety of products for the computing industry. The company's CEO plans to produce a new product, WiFi router and asked
W51 Stephenson Limited produces a variety of products for the computing industry. The company's CEO plans to produce a new product, WiFi router and asked the controller to prepare some information and be ready to meet with him to discuss about it. In preparing for the meeting, the controller accumulated the following data: Selling price of a router $1 ,250 Direct materials per router $270 Direct labour per router $130 Variable overhead per router $80 Total fixed costs $120,000 Required: a) Calculate the contribution margin per unit, breakeven point in units and in sales dollar. (4 marks) b) Calculate the number of units that must be sold and the amount of sales revenue to earn $300,000 of profit. (4 marks) 0) Calculate the break-even point in units and in sales dollar if the company were to reduce variable costs by $220 per unit by investing in technology resulting in an overall increase of $20,000 in total fixed costs? (4 marks) d) The CEO believes the company can increase sales by 50 units if advertising expense is increased by $31,000 based on the original data. Justify whether the company should increase advertising expenditure. (3 marks) W51 Herbert Ltd manufactures parts for battery electric vehicles. The details of the two parts and relevant information are given below for one period: Product parts Part X Part Y Output in units: 7,200 10,500 Cost per unit: Direct material $35 $45 Direct labour $25 $20 Total machine hours 1,200 2,800 Number of production runs 24 35 Orders executed 120 140 Number of shipments 35 40 The data for activity centre, budgeted overhead cost and cost driver are as follows: Budgeted Activity centre overhead cost 5 Cost driver Machining 180,000 Machine hours Set-up 59,000 Number of production runs InspectionIQuality control 29,500 Number of production runs Material handling 78,000 Orders executed Delivery 15,000 Number of shipments Total overhead costs $361,500 Required: a) Calculate the overhead rate based on traditional overhead allocation rate with output in units as the base. Determine the total cost to produce one unit of Part X and one unit of Part Y. (4 marks) b) Calculate the overhead rate for each activity centre based on activity-based costing techniques. Determine the total cost to produce one unit of Part X and one unit of Part Y. (9 marks) 0) Using the data available, explain the differences between the unit overhead costs between a) and b) above. (2 marks)
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